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Edited Transcript of TV.TO earnings conference call or presentation 21-Feb-19 3:30pm GMT

Full Year 2018 Trevali Mining Corp Earnings Call

VANCOUVER Feb 26, 2019 (Thomson StreetEvents) -- Edited Transcript of Trevali Mining Corp earnings conference call or presentation Thursday, February 21, 2019 at 3:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Alexander Terentiew

Trevali Mining Corporation - SVP of Corporate Development/IR

* Gerbrand Van Heerden

Trevali Mining Corporation - CFO

* Mark Daniel Cruise

Trevali Mining Corporation - President, CEO & Director

* Steve Stakiw

Trevali Mining Corporation - VP of IR & Corporate Communications

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Conference Call Participants

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* Craig Hutchison

TD Securities Equity Research - Research Analyst

* Dalton Baretto

Canaccord Genuity Limited, Research Division - Analyst

* Orest Wowkodaw

Scotiabank Global Banking and Markets, Research Division - Senior Equity Research Analyst of Base Metals

* Pierre D. Vaillancourt

Haywood Securities Inc., Research Division - VP & Senior Mining Analyst

* Ralph M. Profiti

Eight Capital, Research Division - Research Analyst

* Stefan Ioannou

Cormark Securities Inc., Research Division - Analyst of Institutional Equity Research

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Presentation

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Operator [1]

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Good morning, ladies and gentlemen, and welcome to the Trevali Mining Corporation 2018 Annual Financial Results Conference Call. (Operator Instructions) I would like to remind everyone that this conference is being recorded.

I would now like to turn the call over to Steve Stakiw, Vice President of Investor Relations and Corporate Communications.

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Steve Stakiw, Trevali Mining Corporation - VP of IR & Corporate Communications [2]

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Thank you, operator. Good morning, everyone, and welcome to Trevali Mining's 2018 annual financial and operating results conference call. Trevali's year-end results were issued yesterday and are available both on our website at www.trevali.com and online at SEDAR. Additionally, a corresponding news release was also issued with our financial results to review the company's financial performance as well as production and sales from our 4 mines: Perkoa, Rosh Pinah, Caribou and Santander. In conjunction with this conference call, there is an accompanying presentation available under the Events and Presentations section on our website under the Investors section and also directly on our webcast as well.

Our main presenter today is Dr. Mark Cruise, Trevali's President and CEO, who will also be accompanied by Gerbrand Van Heerden, Trevali's Chief Financial Officer; and Alex Terentiew, Trevali's Senior Vice President of Corporate Development and Investor Relations.

I will now turn the call over to Mark Cruise.

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Mark Daniel Cruise, Trevali Mining Corporation - President, CEO & Director [3]

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Thanks, Steve, and good morning, afternoon, everyone, depending where you're dialing in from. And as Steve mentioned, welcome to Trevali's 2018 annual financial results conference call. And again, just to reiterate, there is a corresponding presentation available on the website under the Investors Presentations section and, obviously, live during this actual webcast as well.

And just to reiterate and remind you, there will be forward-looking statements in the presentation and as the use of non-IFRS measurements, and these are certainly highlighted in our cautionary notes.

So yesterday afternoon, we released our audited financial results for the year ending December 31, 2018, reporting a net loss of $231 million or $0.27 per share. The majority or really all of that net loss was due to a noncash impairment charge of $263 million. And looking at our adjusted EBITDA, excluding these noncash impairments, came in at $137 million on total revenues of $403 million for the year. So again, just to reiterate, the loss was due to the recognition of the noncash impairment charge as part of our annual impairment analysis that we do, well, obviously, every year in accordance with IAS 36: Impairment of Assets. [Currently], the company is fully compliant with our debt covenants following this impairment. And so that's really some of the background.

Moving on to Slide 4, which really is a summary of the quarter 4 results and the annual summary in the various brackets or boxes there. So on a quarterly basis, we had production of a little bit shy of 103 million pounds of payable zinc at an average C1 cash cost of $0.91 per pound. We did note higher revenues in Q4 versus Q3 due to increased concentrate sales, really, with carryover shipments from the third quarter. Really, our quarterly adjusted EBITDA for Q4 was $41 million. So that's really how the quarter shaped out.

Annually, the consolidated 2018 zinc production was 407 million payable pounds and in line with our initial guidance of ranging between 400 million and 427 million pounds that we set approximately 12 months ago. Our total lead production was 42 million payable pounds, and our silver production was 1.3 million ounces.

And again, our consolidated cash cost came in at $0.77 per pound payable zinc, or if you look at it another way, $68 per tonne milled. And the all-in sustaining costs were at $0.96 per pound payable zinc produced.

Again, on an annual basis, the EBITDA for the year was negative $177 million, again, reflecting that noncash impairment charge of $263 million. Excluding this and looking at the adjusted EBITDA was, as stated, $137 million positive. We do maintain a strong liquidity. Our year-end total cash position is $65 million. Our working capital position is $149 million. And we also have $129 million available to draw then through our revolving credit facility.

So strategically going forward, we remain focused on continuing to optimize our operations. Paramount to that is focused on reducing our costs, increasing the efficiencies at the various operating units. Our exploration remains a strong value driver for the company clearly to extend the life of mines. And certainly, the main focus this year, 2019, is on our Perkoa and Santander assets.

We'll also look at the smart or selected capital deployments at accretive investments and have potential organic growth. But really, from where we are today, again, exploration and operating investments are the prime driver. We do have our normal course issuer bid in place, and we continue to focus on debt reduction, and obviously, some internal organic growth opportunities such as the Rosh P2.0 program and more longer-range strategy around the Bathurst Mining Camp life of mill strategy on that one. So that's really where we are on Slide 4, very much high level.

Moving on to Slide 5, really does looking at the consolidated reports in the chart there. Once we've read through a lot of the numbers in place, but obviously, the main column's focus on is that 2018 column as well, which has all the stats there in front of you and have previously been discussed. But on a year-to-year basis, obviously, noting an additional production 2017 versus 2018.

Moving on to Slide 6. And really, it's probably a bit more interesting, it breaks 2018 column down into more detail in the various bar charts and really illustrates moving from left to right. From operational perspective, again, we did successfully achieve our zinc forecast production guidance table at the beginning of the year. And you can see where the detail comes in from the various mines. Certainly, slight underperformance of both Caribou and Rosh P but offset by a very strong performance at our Perkoa 1, resulting in that net 407 million pounds payable for the year.

Moving to the costs into the middle bar chart there. You can see our consolidated operating costs at $68 per tonne, slightly above the top end of our original range guidance between $60 and $66 per tonne, really, obviously, due to higher costs at Caribou and Rosh Pinah, which they put less payable units through the mill. And again, that gets reflected in the C1 cash cost of $0.77 per pound, which, again, modestly higher than that kind of $0.67 to $0.73 per pound one as well. So that's really kind of on Slide 6 there.

Moving to where we're going from here, the 2019 production outlook on the next slide, which will be #7 for those of you who are following along. As previously disclosed, our consolidated production guidance for this year is ranging between 360 million and 401 million pounds payable zinc, between 44 million and 49 million pounds payable lead and approximately 1.3 million to 1.5 million ounces of payable silver.

Our OpEx consolidated is expected to range from $0.69 to $0.76 per tonne, resulting from that the C1 cash cost forecast between $0.81 and $0.88 per pound. And that net through to an all-in sustaining cost ranging from $0.99 to $1.09 per pound as well. And just to reiterate, given ongoing development programs at Caribou, et cetera, we do expect our costs to be higher in Q1 of this year versus the remaining quarters of 2019.

And we do have also assumed modestly higher zinc treatment charges. Clearly, they will be resolved end of Q1, so that will be some movement around those depending on the end result.

Capital expenditures for 2019 are estimated $82 million, and really, that's comprised of $74 million in site costs and $8 million investment in the exploration programs.

So that's kind of where we are high level. At this point, I'll turn it over to Gerbrand, our CFO, who will take you through the next few slides. Gerbrand?

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Gerbrand Van Heerden, Trevali Mining Corporation - CFO [4]

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Thank you, Mark. Good morning, afternoon, everybody. Looking at Slide 8 and as already touched on by Mark. Turning to a bit more detail on the big line item on the income statement for the year ended 31/12/2018. Obviously, following an impairment analysis in quarter 4, in line with our IFRS requirements, Trevali reduced the carrying value of its mine operations by a net $263 million. The main factors contributing to this noncash impairment, with the emphasis on noncash, were basically commodity price adjustments, which, as everybody knows, previous Street consensus, we were working in a range of from $150 a pound to around about longer out $120. We've adjusted that to a new Street consensus for the group sort of on the high end of Street consensus currently at $125 to $117. And obviously, foreign exchange assumptions are going into our valuations. Another factor is operating cost assumption reviews that we've gone through at year-end, specifically accounting for recent cost performance at Caribou. And some of you might sort of qualify that as being conservative as well as overall inflationary cost pressures across the group. Also looked at capital expenditure review at each of our mines. And also, gone through a detailed review of our exploration and undeveloped assets, specifically, Halfmile, Stratmat and Gergarub, on the back of the longer-term street consensus metal pricing, as mentioned earlier.

We want to emphasize that Trevali's financial position remains healthy, and the board and management remain committed to investing in assets to improve future cash flows. And we as a management team obviously support that. And going forward into 2019, we're looking forward at a performing year.

Turning over to Slide 9 sort of in terms of the financial health of Trevali. As a summary, we maintained a strong financial position on the balance sheet with over $65 million in cash and adjusted working capital of $149 million. Our total debt was $132 million as of the end of the year with net debt of about $67 million, basically giving us a total liquidity position of $194 million, just under $200 million, that leaves us in quite a good position.

Obviously, given the impairment, our credit facility was classified as current at year-end under IFRS requirements, which is a fairly strict accounting requirement. However, we want to emphasize that our tangible net worth covenant was amended by our lending syndicate. Trevali expects to report the carrying value from an accounting point of view of the facility as noncurrent, again, in quarter 1, basically, as from now. We've been in consistent discussions over the year with our syndicate of bankers and basically keep them abreast and there's going to be a very close relationship with us and us with them.

We amended our credit facility in quarter 3 to $275 million, which puts us in a very good position. And as of year-end, plus minus $137 million was drawn and no principal payments are required until maturity in 2021 -- 2022, apologies.

And I think, lastly, the company deployed some of its capital in a share buyback. As you know, in quarter 4, we purchased about 12.7 million shares for approximately $3.5 million in total after year-end. We will obviously continue to do so in 2019 when it makes sense.

And I think at this point, I'll hand it back to Mark. Thank you.

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Mark Daniel Cruise, Trevali Mining Corporation - President, CEO & Director [5]

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Okay. Thanks, Gerbrand, and everyone. Really now, in the next kind of section, we'll look at the Q4 production at the operating unit on a side-by-side basis, so we'll do a quick delve-in into the mines.

And on Slide 10, 10 and 11, we will focus on our Perkoa mine in Burkina Faso. And it continues to perform strongly in Q4, producing 47.6 million pounds of payable zinc and logging quarterly sales of 52.7 million pounds of zinc. Certainly, on an annual basis, Perkoa was a star performer, producing 184 million pounds of payable zinc over 2018 and successfully exceeding its annual guidance twice throughout the year.

From a shipping logistics perspective, we did have record concentrate trucking in December. And we're pleased to report that has lowered site inventories to 24 kilotonnes by year-end, and that is significantly below historic and anticipated inventory staging levels, which are ranging from 30,000 to 35,000 kilotonnes on a given basis. And we do continue to focus on logistics improvements within the region as well and initiatives to minimize these concentrate levels to as low as possible.

Also, we are on an ongoing installation of a new high efficiency oil generators. That is underway. Commissioning is expected in the next few months. And this is anticipated to result in additional power savings probably from Q2 onwards of 2019.

Exploration has been a big focus last year, remains so this year at Perkoa. We'll discuss that in probably a couple of slides on. But certainly, the regional drill program kicked off in Q4, and that has been targeting high-priority VMS targets within the Perkoa belt. So that's really where we are in Perkoa.

Moving to the kind of next mine, which is Rosh Pinah in Namibia, sticking with our African focus at the moment, Slide 12 and 13. It delivered Q4 production of 25.4 million pounds of zinc. Production was in line with Q3 production numbers. And we did have lower mill throughput, but this was offset by higher grades as we are processing and maybe learning a bit more about the slightly higher ore feed from the new Western Ore Field. And really, where production -- last year was the first annual production from that mining zone. So that results in a little bit of a reduction in mill throughput in Q4.

That said, overall mill production is increased in the second half of the year as planned. And certainly, more recently, we do have an improved understanding of the Western Ore Field, and that does compose about 70% of our current reserves, perhaps slightly higher. And really, combined with enhanced ore blending strategies, we are now delivering a lot more consistent, predictable ore feed to the mill, and that is resulting in much more predictable and improved mill throughput and performance as well.

Our RP2.0 study, PFS study, continues to advance. And in the background, a lot of quite a bit of detailed engineering and test work ongoing, and certainly, that we are expecting and anticipating that to be completed in the second half of this year. That's really where we are Rosh P in Namibia at this point in time.

Jumping up to Canada, Northern New Brunswick, on Slide 14, 15, Bathurst Mining Camp operations but primarily our Caribou mine. Really, as you're well aware, we -- Caribou did face significant challenges towards the back half, the latter half of 2018 with some ground control issues. That results in the temporary loss of some production, resulting in Q4 production of 13.7 million pounds payable zinc and 5.5 million pounds of payable lead. Really, during the quarter and ongoing into this quarter, as planned, we have been accelerating underground production developments. And certainly, we are anticipating return to normal mining rates and investment in Q2 of this year. So that certainly does remain on track. And elsewhere as well, we are looking at engineering studies, which are ongoing, to evaluate enhanced and, hopefully, lower-cost, more efficient mining methods given the ground commissions we've encountered at this point in time. So that's where we are at Bathurst.

And finally, jumping at Santander, Peru, our initial and original mine. Pretty boring quarter for Santander, which we like. Delivered Q4 payable production of 16 million pounds of zinc, 2.7 million pounds lead, and so record, actually, monthly production in December. And our quarterly zinc production was 19% higher in Q4 versus Q3 and also with quite attractive cost structure as well.

During Q4, we also successfully -- the site successfully transitioned to fully owner operated as well. And as you can see by the stats, really no negative effects whatsoever on production or throughput as well. So like I said, pretty normal course, boring quarter for Santander.

That's where we are in the operations at this point in time. I read the last section, and obviously, one of our key pillars that we believe in is investing in exploration, maintaining those rolling mine life of mines and then, obviously, hopefully, expanding them as well.

And so Slide 18 and the next few slides talks to that. Really, it does remain a strong value driver for the company. Primary focus last year and this year is very much on in-mine or near-mine brownfield exploration with some high-priority greenfield exploration targets. In really 2018, we drove 70,000 meters, and that main focus was kicking off region exploration at Perkoa.

2019, a bit more of a committed contingent approach. Certainly, we've committed 42,000 meters of drilling in 2019, fairly contingent on success and those drill budgets will be increased. But again, the main focus continues to be resource expansion and grow the life of mine of the operations, and again, with a focus on Perkoa and Santander for the most part.

Slide 19 just gives you a bit of a snapshot of what the guys have been up to in Perkoa. Combination of in-mine drilling, which should be on the left-hand side. So really, continue to test the depth extent of the Perkoa VMS system, which remains open at depth. Team had some good success extending the high ore mineralization, it does remain open at depth.

And then really moving regionally. Last year was the first year of regional exploration period on the property, so the guys have to build a team, get out there and put out the regional surveys, geochemical, geophysical, geological. And really just started drill testing some of those prioritized targets, late in the year in Q4 of this year. And obviously, that drill program hasn't ceased. That's just rolled over into this year and remains ongoing.

Certainly, what we can confirm is there certainly are other VMS systems present on the property package. But clearly, drill testing is ongoing and we need to ascertain whether they may ultimately be productive or barren ones as the case may be. But certainly, very positive proof of concept, and the teams continue to test targets and rank the additional targets for a pretty aggressive program this year as well.

Slide 20 is Santander exploration. Really, the main focus has been on the kind of emerging Santander Pipe target. And this is an area of higher grade mineralization for the size that the exploration team kind of developed the target below the historic workings at the Santander Mine. So the bulk of the exploration last year focused on that one, reusing directional drilling and to basically drill it in an efficient manner. Did report multiple high grade intercepts during the year, and again, that will be captured in our annual resource reserve update towards the end of this quarter, which will roll into our AIF reporting as well.

Regionally, really working on the property package, never had the opportunity to do so for prior years. But really, certainly, we identified 7 distinct hydrothermal centers. The guys are working up on the targets. Initial drill test of one shows certainly it is metal bearing. But again, that work is ongoing, and we just need to see contingent on the results, where, ultimately, whether it will be ultimately successful or not as the case may be.

Then Rosh Pinah on 21. Mainly in-mine underground exploration. Chasing really a target developed from 2017, which we're calling the northwest extension of the western orebody. And really, the bulk of the drilling was focused on that, better defining it, extending it. Again, happy to report that the [cause] of this still remain open to the northwest. And again, that will get captured in our Q1 -- end of Q1 AIF resource reserve calculations.

Have started a bit more work on the regional program as well. Did an initial kind of 6-hole drill campaign. Certainly, 4 of the holes contained pretty significant alterations. So we do know the tools that we're using, be it geophysics and geochemistry, on the property are successfully highlighting hydrothermal systems, which is good. And obviously, now the guys are stepping back interpreting that and just seeing what may make sense on a go-forward basis exploration-wise at Rosh P.

So really, on Slide 22 to wrap up. 2018 was certainly a very, very busy year, integrating the African assets as well a lot ongoing in the background and rebuilding the -- building the corporate team. But certainly, diversified production base will allow us to deliver on our consolidated production guidance of over 400 million pounds. Ended the year with a very healthy cash position of $65 million, adjusted working capital of $149 million, total debt of $132 million and net debt of $67 million as well. And on top of that, again, just to reiterate, we do have additional liquidity of $129 million available on our credit facility, in addition to the normal course issuer bid, which is ongoing. And obviously, exploration was busy during the year, and those results will come out soon. But obviously, our exploration program has kind of rolled on pretty much seamlessly and flawlessly into 2019 as well.

So I think that's pretty much it at the moment. So I will hand it back to you, Steve.

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Steve Stakiw, Trevali Mining Corporation - VP of IR & Corporate Communications [6]

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All right. Thank you, Mark. Operator, we would now like to open up the call to questions, please.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Your first question comes from Ralph Profiti with Eight Capital.

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Ralph M. Profiti, Eight Capital, Research Division - Research Analyst [2]

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Mark, if I may, 2 of them. Firstly, on Rosh P., this ongoing extension of the Western Ore Field, right, I'm wondering if that's having an impact on this Rosh 2.0 study because I'm just thinking about the emerging technology -- emerging geology and linking it to the mill optimization. How are you thinking about that?

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Mark Daniel Cruise, Trevali Mining Corporation - President, CEO & Director [3]

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Well, it's a good question (inaudible). So certainly, Rosh P, I mean, at any kind of optimization study, obviously, it's always going to be a trade-off between throughput, life of mine, kind of basically shrinking if you're pushing more tonnes through. One thing we like about the Western Ore field and always have when we acquired it is it's under-explored. It does remain open for extension. So certainly, last year, this year ongoing, the fact that we can go in and predictably drill where we think some higher grade mineralization or mineralization may extend to (inaudible), certainly gives us a lot of confidence in the geological models. Clearly, work is ongoing, but certainly, I think it does give increasing confidence that should RP2.0 make sense, obviously, continues in our results, at least it should not result in a material shrinking of any ultimate life of mine. And at least, that way, you can maintain higher throughput, but obviously, maintain that kind of, call it, a 10-year rolling life of mine. So very happy with the results to date. And like I said, mineralization does remain open and does respond geophysically and geochemically. And obviously, as the exploration team gets more familiar with the orebody from a geological perspective, I'd like to think it should increase the hit rate as well going forward, although it's been pretty high thus far.

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Ralph M. Profiti, Eight Capital, Research Division - Research Analyst [4]

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Okay. Okay. And if I can ask a separate question on Caribou. You previously made some comments that in and around the second quarter of 2019, Caribou is going to be in this kind of prime position. Ideally, for a mine like Caribou, how much development work is needed ahead of the mine in order to meet expectations, have flexibility but also mitigate risk? Are you thinking about that in terms of, say, tonnes ahead of development or lead time or active versus development stopes? How should we think about the mitigation plan?

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Mark Daniel Cruise, Trevali Mining Corporation - President, CEO & Director [5]

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Yes. It's a bit of all of the above. But the short kind of part of the answer is we really want to have 12 months of developments in place at Caribou ahead of us to give us operational flexibility. In general, I mean, those who have been to Caribou, relatively narrow ore zones, so you need quite a lot of stopes in the cycle. At any one given time, you need 6 stopes in the cycle. So you're mining 2. You're filling 2. You're developing 2. And obviously, if it's something there's a bit of a hiccup, you really don't have the operational flexibility to do anything about it. The plan by the end of this quarter, Q1, we should have 12 months of development in place, broadly speaking. But more importantly, we'll have somewhere between 10 to 12 stopes available in cycle so that if there is an issue, you've got a lot more operational flexibility that it won't hit your throughput. So that's really how we're looking at it and just kind of derisking the mine that way.

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Operator [6]

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Your next question comes from Orest Wowkodaw with Scotiabank.

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Orest Wowkodaw, Scotiabank Global Banking and Markets, Research Division - Senior Equity Research Analyst of Base Metals [7]

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I was hoping we can get some more color on your operating cost per tonne guidance, specifically for Perkoa and Santander. And where I'm going with this is, like, when I look at your 2018 full year costs at Perkoa, you did costs of $105 a tonne, yet you're guiding to $106 to $117, and you're also going to gain the benefit of your energy changes there. And then similarly, at Santander, you did $43 a tonne for the full year '18, you're guiding to $45 to $49. Can you maybe walk us through what's driving these expected cost per tonne increases?

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Alexander Terentiew, Trevali Mining Corporation - SVP of Corporate Development/IR [8]

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It's Alex here. Yes, so on the cost per tonne -- so there's a couple of things. And those 2 in particular, they both had pretty solid years in 2018, Perkoa, Santander. I guess in terms of throughput, Santander did have that period in September there where we had dialed back. But if you take that out, the mine and mill were running quite well. So what we've done from a guidance perspective is, say, hey, we'd like to see that happen again, but we're not necessarily counting on it. So for our -- for guidance purposes and our -- the way we're expecting and communicating to the market is say, so we've dialed those tonnages back a little bit, which does, as can you imagine, add a little bit more conservatism to that cost. At Perkoa, we are expecting grades to come down there. That is as per tech reports in previous discussions, and so there is definitely a keen focus on costs. Right there, the [HFO] program should reduce costs, and we're expecting it to reduce costs by about $5 a tonne once that's up and going. But like I said here, our guidance doesn't include that until happening in Q2. We are spending a little bit more money on security, for example. We haven't had any issues at Perkoa, but it is something that we just -- we are being proactive on. And so that is adding a little bit incremental costs to the mine. And of course, as these mines get deeper, there is a little bit incremental haulage cost. So those are adding up. We think costs should be still kind of relatively similar to where they ended off at the -- in Q4. But that's factored into our guidance for 2019. At Santander, same thing, in terms of the throughput, that's part of it. Santander as well, I mean, it is getting deeper as we're starting to mine the Magistral zones, so the haulage costs, et cetera, are picking up. We are also budgeting for increased water pumping costs as the mine gets deeper. We talked about that. I think 2017 is where we certainly highlighted that to the market that there is more water pumping requirements with depth. But there are hydrogeologic studies ongoing right now. And there are times when we're seeing less water than planned. And so we really -- we are budgeting what I think is for the worst case in a sense that we are expecting a lot more water. But that may not necessarily be the case. But again, we were -- we're factoring that into our numbers just to be conservative there. So that's -- those are what I'd say really the main factors.

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Orest Wowkodaw, Scotiabank Global Banking and Markets, Research Division - Senior Equity Research Analyst of Base Metals [9]

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Okay. And then just separately on the financials. With the impairment charge, which obviously was pretty significant, can you give us an idea of where you see depreciation moving forward, say, for an annual basis for the assets in 2019?

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Gerbrand Van Heerden, Trevali Mining Corporation - CFO [10]

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Orest, I -- give me 2 or 3 seconds to gather my thought. In terms of looking forward, depreciation for the year, obviously, with the integration of the African assets with, call it, the American assets, we had to align depreciation methods. And going forward, given the mix of life of mines for the 4 assets, we will basically continue on a conservative basis to depreciate at the same rate as we had in 2018. Safe to say.

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Orest Wowkodaw, Scotiabank Global Banking and Markets, Research Division - Senior Equity Research Analyst of Base Metals [11]

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But doesn't the impairment merit you materially lowering the carrying cost of the assets, which in turn should lower the depreciation? Or am I missing something there?

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Gerbrand Van Heerden, Trevali Mining Corporation - CFO [12]

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That is an expectation. But like I said, I think we're fairly conservative from an accounting point of view and the remaining will -- keeping the depreciation rates high according to the life of mines. So basically, on the alignment of, let's call it the new Trevali in 2018, we're going to maintain our depreciation rate in line with our actual life of mines. So as you mentioned, the -- obviously, the expectation is that a lower depreciation rate will be a result of the impairment. But based on the overall feature, I can tell you that we're going to maintain the same depreciation rate going forward. And that's just prudent and conservative, and good accounting principles. Let's call it financial management from our perspective.

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Operator [13]

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Your next question comes from Stefan Ioannou with Cormark Securities.

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Stefan Ioannou, Cormark Securities Inc., Research Division - Analyst of Institutional Equity Research [14]

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Just curious in New Brunswick with just obviously, a lot of attention on Caribou right now and just getting that mining operation back up to, sort of, design levels. Is there much thought going into, sort of, life beyond Caribou there right now? Or is all, sort of, hands on deck at Caribou for the most part?

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Mark Daniel Cruise, Trevali Mining Corporation - President, CEO & Director [15]

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Yes, Mark -- Stefan. Listen, I'd say, 90%, 95% of the effort is definitely on Caribou. Clearly, it's our only operating unit there, so it has to work. So that has been the bulk of it. So really the rest of the, kind of, Bathurst Camp strategy has certainly taken a backseat for the moment. Obviously, as we come out of the end of this quarter and get more comfortable, we'll get that development in as we, kind of, discussed. And then we can, kind of, restart that or look at it a bit more. But certainly, the main focus has been and needs to be on Caribou at this point in time.

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Stefan Ioannou, Cormark Securities Inc., Research Division - Analyst of Institutional Equity Research [16]

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Okay. Great. And then just -- Alex kind of briefly touched on it. But just in Burkina Faso, just, obviously, some of the security concerns and issues throughout the country over the last few months. Obviously, it sounds like the mine has been pretty isolated from that. But can you, maybe, just provide a little bit more color on exactly what you're doing from the security point of view there? Like, is it the mine specifically or is it getting the concentrate out? Or a bit of both or...

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Mark Daniel Cruise, Trevali Mining Corporation - President, CEO & Director [17]

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No. Listen, our main focus is always going to be on our people. So really, concentrate goes south anyway, so away from, let's call it, the hot zones of north, so that's never been an issue on the conc trucking. And so, really, a lot of it is just opening and preparedness, vigilance at the site level, just improving the fences, increasing our security presence. We do have now 2 full-time security basically professionals on site. And just a lot of it's, kind of, common sense, just not driving at night time, what have you. So general enhancement of the overall site, people security, which is our main focus and really at a site level. But as you say, there never has been an issue at site or in the region. But nonetheless, we are not taking it for granted. And we just want to make sure that we operate for people as safe as possible.

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Operator [18]

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Your next question comes from Pierre Vaillancourt with Haywood.

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Pierre D. Vaillancourt, Haywood Securities Inc., Research Division - VP & Senior Mining Analyst [19]

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Mark, I was wondering, could you -- given the return to normalcy at Caribou, what is your steady state there in terms of what you hope to be putting through the mill? Like, starting next quarter, when things are more normalized?

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Mark Daniel Cruise, Trevali Mining Corporation - President, CEO & Director [20]

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Yes, no for sure. So certainly, when we get back to normal operations into Q2, certainly anticipation will be consistent delivering, somewhere between that 2,800 tonnes, kind of, 3,000 tonnes per day on a daily basis.

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Pierre D. Vaillancourt, Haywood Securities Inc., Research Division - VP & Senior Mining Analyst [21]

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Okay. And as for your earlier comments, the focus is squarely on Caribou. So that -- presumably that 2,800 to 3,000 tonnes per day, that's all going to come from Caribou, then?

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Mark Daniel Cruise, Trevali Mining Corporation - President, CEO & Director [22]

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Correct.

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Pierre D. Vaillancourt, Haywood Securities Inc., Research Division - VP & Senior Mining Analyst [23]

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I know in past discussions how you have mentioned how Restigouche would take 6 months or so, or maybe a little longer to come online to complement feed from Caribou. And so, that's off the table for now, I take it?

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Mark Daniel Cruise, Trevali Mining Corporation - President, CEO & Director [24]

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Yes. No. Listen, the main focus is definitely on Caribou. Clearly, like I said, get the development in, get that tonnage throughput up to that, kind of, normal most efficient run rate. And then we'll see from there. I mean, obviously, as well with the gram conditions clearly a lot of lessons learned at Caribou. So we will -- well, we will be looking at gram conditions a lot closer at other development stage projects in the camp as well, just to make sure that we're looking at it appropriately. But for now, like I said, the main focus really for the majority, well, this year, really is, let's get Caribou fixed in Q2, get the tonnage up and the throughput up, make sure that's stabilized and sustainable. And then obviously, we can see what else may make sense on a scheduling perspective in light with commodity prices, et cetera, more in that, kind of, medium-term period.

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Pierre D. Vaillancourt, Haywood Securities Inc., Research Division - VP & Senior Mining Analyst [25]

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So I guess, as long as you have your 6 stopes -- 6 active stopes, you should be okay reaching that throughput?

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Mark Daniel Cruise, Trevali Mining Corporation - President, CEO & Director [26]

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That's the plan. Like I said, the plan is to have additional stopes in the pipeline, minimum 10, hopefully 12. But certainly have backup stopes available. So there is minor delays or you lose a bit of a stope for whatever reason and at least you've got a lot of flexibility or a lot more flexibly than historically has been the case in the mine plan, that you can keep that mill full and you can keep that throughput or maintain that throughput.

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Pierre D. Vaillancourt, Haywood Securities Inc., Research Division - VP & Senior Mining Analyst [27]

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Okay. And just looking at your CapEx. It's comparable in 2019, like, overall for the company I'm talking about here, it's comparable to what it was in 2018. How do you see that evolving over time? Where do think that, kind of, normalizes? Or is this the number we should expect going forward?

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Alexander Terentiew, Trevali Mining Corporation - SVP of Corporate Development/IR [28]

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Yes. Pierre, it's Alex. I mean, there is a little bit more CapEx being spent right now. At Rosh Pinah, for example, we are doing some mini mill upgrades there in terms of the floatation grinding circuit and the filter press and that spending will be probably a little bit back end weighted to the year. Same thing with Santander, we're spending a little bit more on power infrastructure. And again, Caribou, some of that -- some of the additional spending is on development. So you could argue that the cost are probably a little bit higher this year than they could be in future years, but all that obviously depends on the life of mill strategy, how we pursue that in Rosh Pinah 2.0, et cetera. So there are reasons why we are spending a little bit more this year. But I think, kind of, in the $12 million to $15 million per mine per year is probably the run rate sustaining CapEx number that makes sense.

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Pierre D. Vaillancourt, Haywood Securities Inc., Research Division - VP & Senior Mining Analyst [29]

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Okay. So ballpark, $60 million or so is where you wanted to net out then?

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Alexander Terentiew, Trevali Mining Corporation - SVP of Corporate Development/IR [30]

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I think that's about a reasonable number.

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Pierre D. Vaillancourt, Haywood Securities Inc., Research Division - VP & Senior Mining Analyst [31]

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Yes. Because I'm just wondering, in terms of what -- CapEx numbers, I mean, obviously, there's Rosh P 2.0, and I'm also thinking you addressed the transportation and infrastructure at Perkoa. And given the distance that the decline have to go, I mean, that could be a fairly significant number if you really want to address that in full -- to greater extent?

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Alexander Terentiew, Trevali Mining Corporation - SVP of Corporate Development/IR [32]

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Yes. I mean, the distribution -- sorry, I'm not sure if I caught -- sorry. Go ahead, Mark.

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Mark Daniel Cruise, Trevali Mining Corporation - President, CEO & Director [33]

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Yes, I can jump in. Yes. So Pierre, I mean I think the main thing is just to make well -- first is working on the efficiencies just to make sure that we can truck as much offsite on a, kind of, monthly/quarterly basis. So that's the first goal on that, kind of, call it transport initiative for Burkina. And so really, it's looking at alternative -- potentially alternative ports, potentially alternate trucking routes or methods as well. But the first goal is maintaining a flat cost base on a per tonne basis, which is getting the concs to the port, so we can get them sold. So minimizing inventory on site. Because that's kind of money that we don't -- concs we don't get paid for but it gets shipped. So that's the main focus. And then hopefully, the secondary one with that, if we can get those efficiencies in there, hopefully we might get cost savings. But really, it's -- transport efficiency is the first one to get the concs to port, so we can have minimum inventory on site. And then obviously, the second goal or the second win from that one will be, hopefully, if we -- the (inaudible) of the site, the team on site can do that a little cheaper, obviously, that will be useful as well.

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Gerbrand Van Heerden, Trevali Mining Corporation - CFO [34]

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Just to add on to Mark there, a good point just to take note. As I said, we have significantly beefed up the management skills or the management team on site, specifically on the commercial side, and I mean, with the intent to drive down cost. And that's basically coming to effect with a -- sort of a revamp commercial, financial team, strengthened team end of 2018, beginning of 2019.

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Operator [35]

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Your next question comes from David K, who is a private investor.

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Unidentified Participant, [36]

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I got a couple of questions. One, where are you with the share buyback program as of today? Like, how many million shares have you repurchased? And secondly, would you consider increasing the buyback program in the future?

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Alexander Terentiew, Trevali Mining Corporation - SVP of Corporate Development/IR [37]

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David. So in 2019, we had not purchased any this year, but we did purchase 12.7 million shares for about CAD 4.7 million back in, I guess, it was November and December. We're going to be able to start repurchasing again next week. The -- where we -- I mean, what factors into that decision is really -- a few things really, it's one, the price of zinc, because when it comes to our cash flow, the intent of the share buyback is to -- is use free cash flow for that purpose. But also, so the price of zinc, our share price and anticipated future uses of that cash. So it is something that we are actively managing. And I'm sure, we will be discussing that as a management team and board again shortly. So I think you had another question there.

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Unidentified Participant, [38]

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Well, I guess, the second part of that was that -- if zinc prices increases, would you increase the share buyback from that CAD 20 million or whatever is allotted to it?

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Alexander Terentiew, Trevali Mining Corporation - SVP of Corporate Development/IR [39]

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Oh, you're saying beyond the full CAD 20 million. Well, look, it's definitely something, I think, that we'll have to consider. But we do have projects like RP 2.0 that we are looking at advancing as well. So we do need to weigh that. And I think, you hit it on the head there with the price of zinc. It all really means that's the biggest driver. If the price of zinc goes up and the balance sheet is a lot stronger, then it makes that decision easier. But we are always open to increasing that or extending that subject to TSX approval.

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Unidentified Participant, [40]

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Okay. Seems to be a disconnect between the inventory -- the LME inventory -- inventories and the price of zinc. Is there some kind of manipulation going on, speculators or whatever?

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Alexander Terentiew, Trevali Mining Corporation - SVP of Corporate Development/IR [41]

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Well, I think, there's always speculators in the market. And trying to understand what they're doing is getting harder and harder all the time. But you're right, again here, I mean the price -- or sorry, the inventories of zinc on any sort of visible exchange have been declining continuously. I think they were down a few percent, 3,000 tonnes this morning to about 83,000 tonnes. I think we're now -- global zinc stocks are about 6 days worth of inventory. So I believe that's now the lowest level since 11 years, 2008 or so. So the inventories are drawing down. The mine supply is growing, but it's not growing as fast as people thought. And refined supply is very tight. China remains the big black box here. I mean, environmental restrictions are still limiting output. And we are optimistic or positive on the fundamentals of zinc here. We are seeing Chinese refined supply growth slowly, as they are importing more concentrate, but they're also importing more refined zinc, which to me suggests that there are not -- there is not enough zinc out there for them to meet their internal demand. But nonetheless -- so I guess, what I'm trying to say is the outlook for the commodity does look positive here. But in terms of speculation or manipulation, I mean, I can't really -- I guess, your guess is as good as mine.

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Unidentified Participant, [42]

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Right. The other question I have is, what's the share ownership breakdown? Like, Glencore's got 25% or 26%, institutional holders have what percent and what's the remainder?

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Steve Stakiw, Trevali Mining Corporation - VP of IR & Corporate Communications [43]

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David, Steve here. Yes, roughly the breakdown. So Glencore owns just over 25% of the issued and outstanding shares of Trevali. From an institutional perspective, roughly around 40% is institutionally held. Some of the larger shareholders in there, institutionally, are BlackRock, M&G out of London and a number of others out there as well.

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Unidentified Participant, [44]

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Okay. So that's 25% and 40%, that's 65%. So the other 35% is held by a broad spectrum of ...

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Steve Stakiw, Trevali Mining Corporation - VP of IR & Corporate Communications [45]

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It's largely retailed, correct. Yes. No. About 35% to 40% is retail held.

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Operator [46]

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The next question comes from Dalton Baretto with Canaccord.

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Dalton Baretto, Canaccord Genuity Limited, Research Division - Analyst [47]

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Three questions for me. First, just in terms of these improvements in logistics you guys are targeting. Can we get a little bit more color on that? Specifically, what you guys are targeting? How are you measuring improvement? And what you're hoping to achieve?

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Gerbrand Van Heerden, Trevali Mining Corporation - CFO [48]

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Okay. So cover that one first, Dalton. Obviously, we've got a couple of projects ongoing at the moment and ongoing for the last couple of quarters, basically. We're chasing basically the weekly transport rate or tonnes moved to the port. In terms of trucking, we've got specific projects ongoing internally in finding additional trucks at the right cost because that's obviously a very important consideration to drive up transport cost. We've -- like I said, we've beefed up the management team and the supervisory team in terms of the guys looking after the commercial side of the business, specifically the logistics. And the port handling, we've got increased, basically, interaction with the off-takers or the traders and the shippers, the logistics people. We're looking at different options in terms of moving the concentrate to the port. We're investigating alternative rail option, which is semi positive at this stage. It will still be quite a while before we finalize that. Things do move a little bit slower and -- all sort of ways Africa. But that's actively ongoing at the moment. We are considering moving stock through different ports. We are investigating that with our off-takers at the moment. And that's all, sort of, objectives ongoing at the moment and literally, receiving daily attention. And obviously, we're chasing the daily tonnage to get to the port because that's our mine intention.

And which I can positively report on the first couple of weeks of this year has actually gone quite well. And it seems like we're building good rhythm there. But we'll keep you up to date.

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Dalton Baretto, Canaccord Genuity Limited, Research Division - Analyst [49]

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Okay. Great. And maybe just switching gears to Perkoa's regional exploration. Just trying to get some detail around specifically how much you guys are drilling, what you're targeting. And what you're hoping to achieve this year and what the news flow is going to look like.

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Mark Daniel Cruise, Trevali Mining Corporation - President, CEO & Director [50]

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Yes. Mark here, Dalton. So really -- so what's happening this year is the following up on high priority targets generated from last year. Drilling started late in Q4. There was an extended wet season in West Africa in late 2018, so the guys got started, really wasn't until late October, effectively November, before the rig started turning. Trying to play catch up there. Certainly, the guys have tested 4 targets. 2 of them were definitely VMS systems. To be clear, though, that does not mean they're economic or whatever else. But what we do know is, we have sulfide bearing, semi-massive to massive bearing, volcanic, mesogenic sulfide systems, external and unrelated to the Perkoa system. That's definitely positive. One of them -- I think we're just too deep in the system. So it was rolling away, so that's just luck of the draw. And ongoing work on the second system and obviously, doing more detailed geochemistry, geophysics, whatever, and just seeing if we're homing in on something on that one. So that's, kind of, ongoing, kind of, active drill campaign. Elsewhere, we have basically, a geophysical crew, just basically screening the perspective quartile Perkoa horizon across the property package, and that's just using fluxgate loops. So the mineralization does respond well to geophysics and does give us a geophysical response. Sometimes you, can get false anomalies. That's then screened using geochemistry and geology and then obviously, getting into the ranking. So that's kind of where we are. But we have -- so like I said, 1 geophysical team on the property at the moment regionally. And we've got 1 geochemical air core rig regionally as well and 3 field teams as well active. And we're currently moving in a second geophysical team and a second geocamp air core rig team as well as we speak. So the idea is to hit it very hard this year. And clearly, the hope is discovery. That's really what we're looking for here. And certainly, we'd like to think that how we measure success is getting an economic intercept into that drill barrel by the end of the year. Obviously, you don't know if it's going to be big enough, but I think -- what we do know at the moment is, the tools and techniques we're using is getting us into VMS hydrothermal systems. And after that, it's a numbers game, it's a drill it, kill it and move it on.

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Dalton Baretto, Canaccord Genuity Limited, Research Division - Analyst [51]

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Okay. Great. And then just maybe one last one for me and I appreciate this one's probably a little bit sensitive. But can you guys give us an update at all in terms of how your search for a new CEO and Chairman is going? And just, kind of, what you're looking for in terms of the background?

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Mark Daniel Cruise, Trevali Mining Corporation - President, CEO & Director [52]

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Sure, Mark here. No, it's not sensitive at all, Dalton. Quite happy to answer the questions. Listen, I mean, obviously, the search is ongoing. It's always sensitive. It is a confidential topic, though. So not really prepared to say anything other than that search is ongoing at this point in time. I think we have previously said and disclosed -- as the company's matured, we got -- our assets are integrated. We are definitely looking for more operational focus and skill set in that CEO and we've been very open about that one as well. So that's, kind of, where it is. So ongoing. But I think, the main thing is the team is fully focused. We're setup. But it's business as usual in the interim. And you just want to make that transition as smooth as possible. And really, the team, myself haven't taken the eye off the prize, which is delivering on those quarterly results.

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Operator [53]

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Your next question comes from Craig Hutchison with TD Bank.

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Craig Hutchison, TD Securities Equity Research - Research Analyst [54]

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Just 1 question for me. At Perkoa, costs were up about 10% or 12% quarter-over-quarter, despite better grades and better throughput. There's a note in the MD&A talking about some of the costs were associated with the new social development fund. Can you give us context around what that is? And maybe the size of it? And whether that is going to be an ongoing cost for you guys?

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Gerbrand Van Heerden, Trevali Mining Corporation - CFO [55]

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Craig, Gerbrand here. It's been a topic that's been in discussion or basically been sort of legalized and promulgated by the Burkina Faso government for the last, say, 12 to 18 months. There were certain stumble blocks in terms of how the mines and the chamber of mines, basically, wanted to have an input in how those funds gets deployed locally. Technically, one of the challenges, let's call it, in those countries is that -- ends up in the [fiscus] and effectively not applied to the local community. So through the chamber of mines in Burkina Faso, obviously, Perkoa and the mining being a part of that and actively involved, have been trying to drive out the sort of commitments required from a government perspective. And whilst that was ongoing, obviously, we've continued to accrue for the social fund levy. It's a percent of your gross revenue number effectively, what it boils down to in a nutshell. And with certain developments right to year end, there was basically, sort of, a short-notice call at year end for the mines to pay up. We can speculate on the governmental reasons for that. It's not we are guiding to it. But obviously, we make the call based on all of that at year end, in terms of our support of local government and obviously the local drive.

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Mark Daniel Cruise, Trevali Mining Corporation - President, CEO & Director [56]

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And Craig, just to reiterate, this is industry wide. It's not just [none too] are Perkoa specific. So it is for the mining industry as a whole within in country.

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Craig Hutchison, TD Securities Equity Research - Research Analyst [57]

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And so, are these additional costs in your 2019 guidance already?

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Mark Daniel Cruise, Trevali Mining Corporation - President, CEO & Director [58]

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Yes.

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Operator [59]

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Your next question comes from [David Brown], who is a private investor.

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Unidentified Participant, [60]

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In the past in the winter in Caribou, you've had zinc recoveries drop because of presumably colder water temperatures. Is that pretty -- have you thoroughly exhausted trying to solve that issue? Or have you got some new ideas to handle that?

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Mark Daniel Cruise, Trevali Mining Corporation - President, CEO & Director [61]

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Yes, Mark here. No, certainly it has been a challenge. It is ongoing. The short answer is no, we haven't given up on that. We're working very closely with our partners. That's one of the benefits. We get full access to our partner, Glencore technical services and their corporate mythologist. He continues to work with our site met team as well on that one. So research is ongoing. And we're also working when we build engineering metallurgical program as well and they're doing quite a lot of research at the moment. We're -- it's still early days. I mean, just for other people listening, typically we see a, kind of, 4%, 5% drop in zinc recoveries over the winter period. And obviously, that's quite significant, so we're trying to mitigate against that. What I will say is we're starting to see some modest improvements, but there's a lot of work to be done yet on a year-to-year basis. But the research is ongoing. But yes, it's just a bit of a difficult one to crack at this point in time. But no, we haven't given up.

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Operator [62]

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Your next question comes from (inaudible) with [TELUS Pension].

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Unidentified Analyst, [63]

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I just want to follow up on the higher cost you expect in Q1. Can you kind of maybe tell us the kind of magnitude in terms of relative to the rest of the year?

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Alexander Terentiew, Trevali Mining Corporation - SVP of Corporate Development/IR [64]

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[Moji], it's Alex. Don't have my quarterly cost breakdown in front of me. Actually, I think in our guidance, in our press release, even then in January '17, we did give a range for Q1 -- sorry, I don't think I can find it here quickly. But actually [it's given] in the press release at the back. So we do have a guidance for Q1. I think, we note that operating cost, kind of, in the range of $73 to $81 a tonne during the quarter. As we said here, we do expect that to be the highest cost quarter of the year.

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Unidentified Analyst, [65]

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Okay. So $73 to $81 per tonne for Q1? So that is for Q1?

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Alexander Terentiew, Trevali Mining Corporation - SVP of Corporate Development/IR [66]

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Yes.

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Unidentified Analyst, [67]

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Okay. Okay. Then depreciation question that was asked earlier, I still didn't get the logic behind that. Because my expectation is, your depreciation is based on the value of the asset over the life of mine. And given that you've taken the value of the asset down quite significantly, how can your rates still be the same?

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Gerbrand Van Heerden, Trevali Mining Corporation - CFO [68]

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Yes. I think the sort of realistic, [Moji], answers -- to try and answer you in a different way is that we've -- overall from a group accounting policy perspective, we've increased the rate of depreciation from now and on going forward. And obviously, the comment that Trevali 2017 and before that time explored or developed slightly longer depreciation rates. And we've buttoned that down to fairly conservative, basically IFRS producing mine guidelines.

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Unidentified Analyst, [69]

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So will this have any impact on the life of mine? Or it's just like you're increasing the rate? Because my assumption will be given the write-down, there will still be less to depreciate.

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Gerbrand Van Heerden, Trevali Mining Corporation - CFO [70]

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Absolutely. I know it doesn't make sense, but we've -- effectively to reiterate, we've increased the rate of depreciation across the group on average. But that is aligned with actual life of mine, reserves and resources.

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Unidentified Analyst, [71]

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Okay. Okay. That's interesting. Then, in terms of the CEO search, like can you give like a timeline in terms of when to expect something?

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Mark Daniel Cruise, Trevali Mining Corporation - President, CEO & Director [72]

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Mark here, [Moji]. Listen, like I said, I mean the search is ongoing. Clearly, we can't get into the nitty-gritty details. It's confidential on various candidates, whatever. Certainly, the hope is as soon as it's feasible, we'll make that transition. But really -- that's really all we can -- well, prepared to say at this point in time.

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Unidentified Analyst, [73]

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Okay. So you can't give like second half of the year or first half of the year, kind of, timeline?

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Mark Daniel Cruise, Trevali Mining Corporation - President, CEO & Director [74]

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No. Like I said, I mean, it is the main focus, clearly, the board, management, myself. So it's not as if -- I mean, like I said, it is a very much active process. So obviously, the hope will be sooner. But I'm not prepared to give any hard guidelines or timelines at this point in time.

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Unidentified Analyst, [75]

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Okay. Then, if I understand you correctly, your cost guidance for Perkoa does not include the start-up of the power generation unit, the savings from that?

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Mark Daniel Cruise, Trevali Mining Corporation - President, CEO & Director [76]

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So it does. But we're assuming it starts in Q2.

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Operator [77]

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That's all the time that we have for questions. I turn the call back to the presenters for closing remarks.

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Steve Stakiw, Trevali Mining Corporation - VP of IR & Corporate Communications [78]

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Thank you, everyone, for dialing in, and participating in our conference call this morning. An archive of this presentation is on our website. As usual, if anyone has any follow-up questions, please feel free to give us a call or e-mail us. Thanks again. And everyone, have a good day.

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Operator [79]

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This concludes today's conference call. You may now disconnect.